By Sunday Michael Ogwu, Lagos & Francis Arinze Iloani
Financial experts have expressed concerns that the Central Bank of Nigeria (CBN) may reverse its decision on THE proposed flexible exchange rate regime.
Damina Advisors, a preeminent Africa-focused independent frontier markets risk research, due diligence and Africa M&A transactions consulting and strategic advisory firm, believed that the determination of President Muhammadu Buhari not to devalue the Naira could force the CBN decision somersault.
President Buhari, in a nationwide broadcast to mark his first year in office on May 29th, said that the naira would not be devalued because devaluation would harm the economy.
This situation may make the apex bank unable to, within its own self-imposed 7 day (168 hour) deadline, reconcile the contradictory monetary economic principles that could underline implementation of the flexible exchange rate regime.
Experts believed that flexible exchange rate regime could see the Naira fall temporarily to 380-400/$1USD or spike even higher. It warned.
The experts argued that the central bank seemed rather stumped in implementing the new policy, adding that the bank was constrained by the lack of political support for a devaluation of the local currency, which is a sine qua non of any FX policy adjustment process within a fixed currency framework.
Nigeria can not credibly adopt a “flexible” FX policy under the present circumstances without an official devaluation/depreciation of the Naira, said, adding that with vastly diminished FX reserves, approaching just three months of import cover, the central bank can no longer support domestic demand for dollars.
The experts said that the bank was likely to backtrack on its promise to adopt a flexible regime and tweak the current fixed-peg regime in an attempt to narrow the gap between the official currency rate and the black market currency rate which is over 40% and growing.
“Governor (of CBN) Godwin Emefiele and his colleagues will postpone the day of reckoning,” they said.
Traders cry out
The National Association of Nigeria Traders (NANTS) has said that the association’s members were the most affected by the federal government’s fixed exchange rate regime.
The claim was contained in a statement issued by the association’s President, Ken Ukaoha.
“As a body whose members have borne the brunt of the fixed exchange rate regime, NANTS is gladdened by the Central Bank of Nigeria’s pronouncement to adopt a more flexible foreign exchange regime,” the statement said.
The statement said that the move to introduce flexible exchange rate policy was in the right direction.
It said that the policy, if thoroughly implemented, would have far reaching effects in retooling the economy.
“We believe that foreign investors who have left the country, citing the fixed foreign exchange regime, will be forced to come back, especially given the huge return on investment which can only be located in Nigeria,” it said.
Exchange rate still N197 – CBN
Amidst concern about the introduction of a flexible exchange rate regime by the CBN, the apex bank has said that N197/$1 remained the official exchange rate.
Mr Isaac Okorafor, the acting head of corporate communication of the CBN, made the clarification at a one-day interactive enlightenment session with labour stakeholders in Lagos, over the weekend.
Okorafor, who was responding to concerns raised by the labour leaders on the flexible exchange rate, said that the apex bank was working on guideline for the new exchange regime.
He said that the guideline would be made public after work on it was completed.
“Until that pronouncement becomes public, the exchange rate remains N197 to the USD,” he enthused.
The session discussed measures by the adopted by the CBN to ensure stability in the financial system and the economy, the consumer protection drive of the apex bank and update on the cashless policy of the bank.
Speaking on the labour perspective on some key policy measures of the CBN, comrade Isa Aremu, a national executive council member of the Nigeria Labour Congress (NLC), commended the apex bank for resisting the devaluation of the Naira.
Read more at http://www.dailytrust.com.ng/news/business/concerns-over-flexible-exchange-rate-policy-take-off/149905.html#4Azg0TwSqSOLjRpF.99
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